Recently the administration released a proposal for a far-reaching reorganization of the federal government that included a goal of privatizing the United States Postal Service. The proposal offers scant detail other than to suggest that the Postal Service be stabilized in preparation for privatization and that the task force established by the President will provide a more detailed plan for implementation.

Privatization of the United States Postal Service is an extraordinarily complicated proposition. The record in other countries has been mixed and none offer much insight into the question of attempting to privatize the United States system, which delivers 42% of the world-wide mail volume across a huge geographic area. In addition, there are no readily apparent buyers for the Postal Service and no clarity on how more than $150 billion in legacy costs for employee pensions and medical benefits would be addressed. The proposal emphasizes the decline in First-Class Mail, and economic risks to Marketing Mail, but seemingly does not recognize that a private-sector postal operator would face the same challenges. One factor that seems clear is that any privatization scheme would require at best, large tax payer subsidies to maintain universal service and at worst the degradation and/or elimination of rural mail delivery and the network of post offices in many areas. Reduction in delivery frequency also seems a live possibility. The Postal Service estimates that large numbers of rural areas, and even some urban areas would lose mail service under privatization and as many as 13,000 post offices would be closed.

The proposal stresses the Postal Service’s deficits but does not distinguish between its operating results – commonly profitable – and the legislated structural constraints (such as the unworkable retiree health benefit prefunding timetable) which are mainly responsible for the losses. From 1970 through 2006 the Postal Service was able to cover its operational costs almost exclusively through postage paid by users of the system. In 2006, Congress enacted the Postal Accountability and Enhancement Act which included a provision requiring the Postal Service to fund 75-years’ worth of retiree healthcare costs in only 10 years. No other federal agency is required to prefund at that level. This provision was a last-minute addition to the bill meant to reduce the cost to the government for implementing other provisions. With the onset of the 2008 recession, coupled with the invention of the iPhone and similar advances, the Postal Service was unable to cover the additional $5 billion per year cost in addition to its operating expenses. While the USPS has accumulated more than $50 billion for retiree healthcare, far more than most public or private sector entities, the obligation from the 2006 law has distorted its balance sheet and contributed to the notion that it is insolvent. The Postal Service has continued to be able to fulfill its operational needs and within a few years after the recession was able to post modest surpluses for several reporting periods. Current legislation supported by GCA would adjust the 2006 prefunding mandate to provide a more reasonable amortization period and allow the Postal Service to fully integrate its retirees into Medicare as is commonly done in the private sector. These actions combined with a modest 2.15% rate increase would eliminate more that $50 billion in liabilities from the Postal Service balance sheet, while preserving current service levels.

There is little risk that privatization could be implemented in the near term. Beyond the basic practical issues above, it faces substantial legislative obstacles. Legislation would have to be enacted and passed by both chambers of Congress including garnering sixty votes in the Senate. At present, there is little evident support for postal privatization in either the House or Senate other than a few extremely conservative Members. It should also be noted that two separate resolutions supporting current mail service standards including six-day delivery have garnered passage proof bipartisan majorities in the House. Moreover, the proposal has already generated opposition from the Postal Service employee unions and a growing portion of the mailing community.

In fact, opposition to postal privatization offers the potential to reinvigorate the effort to pass pending postal stabilization legislation. As Members of Congress become aware of the negative impact privatization would have, they can be encouraged to look at the pending reform bills in the House and Senate as a much better alternative. The mail stakeholder community will have to work together in an effort to promote that view.